Port Contract Now A 3-way Race

August 11, 2009|By Peter Frost, pfrost@dailypress.com 247-4744

Setting the stage for a three-way competition involving billions of dollars and one of the state's key economic assets, Virginia officials late Monday determined that two proposals to privatize at least a portion of operations at the state-owned port terminals meet minimum requirements and will be considered.

Washington, D.C.-based private equity firm The Carlyle Group and a partnership of Seattle-based transportation giant Carrix Inc. and investment bank Goldman Sachs joined Oak Brook, Ill.-based CenterPoint Properties Trust in the competition, which likely will stretch several months or even years.

Both proposals, published to the Virginia Port Authority's Web site late Monday, will be reviewed by an independent panel appointed by Transportation Secretary Pierce M. Homer, who has yet to appoint the members.

Carlyle's proposal most closely mirrors the one submitted by CenterPoint, an industrial real estate firm owned by the California Public Employees' Retirement System, or CalPERS.

The Carrix bid involves substantially less money and stretches for half the time.

Through its Infrastructure Partners sector, Carlyle would offer an upfront cash payment of between $500 million and $700 million, followed by annual payments over the 60-year life of the deal. It also would offer a profit-sharing plan in which payments escalate based on performance benchmarks tied to Carlyle's internal rate of return.

The Carlyle Group is one of the world's largest and most influential private equity firms, with more than $84.5 billion under management.

Carlyle would lease the port authority's three marine terminals in Hampton Roads, an inland port facility in Front Royal and the future Craney Island development in Portsmouth.

Like CenterPoint's proposal, Carlyle would acquire the port authority's operating arm, Virginia International Terminals, and operate it as a subsidiary.

"(W)e believe VIT is best positioned to continue to operate the port facilities with no disruption to the operations of the local maritime community," the company said in a letter signed by managing directors Robert W. Dove and Barry P. Gold.

Carlyle would also keep the port authority as a state agency monitoring the ports but "consolidate much of its staff" into VIT. At the end of the 60-year agreement, VIT would remain a Carlyle entity, while port facilities and equipment would revert to the state.

Also similar to CenterPoint's bid, Carlyle said it could pair the port operation with intermodal capability. It owns the intermodal services company ITS Technologies & Logistics LLC, which operates more than 50 facilities in the U.S. and Mexico.

Drawing yet another comparison to CenterPoint, roughly 5 percent of Carlyle is owned by CalPERS, said Chris Ullman, a Carlyle spokesman.

In the bid, Carlyle said it intends to own and hold a controlling interest in the concession assets and VIT and does not expect any change in future ownership. However, the company reserves the right to transfer or sell at any time.

Privately owned Carrix Inc. is the parent of Seattle-based SSA Marine, the largest U.S.-owned marine terminal operator, with operations in more than 125 ports worldwide.

In addition to its separate partnership with Carrix on the port authority bid, investment bank Goldman Sachs owns a 49 percent stake in the company.

Its proposal stretches for 30 years and offers an upfront payment of $250 million, which the partnership said could go toward retiring some of the port authority's outstanding debt issues.

In its cover letter, Carrix Vice President Bob Watters said the company's proposal allows the state to consider privatization options in the future when financial markets improve, "which we believe creates better option value today given the challenges of the current market environment that have depressed the valuation of port assets."

Later in the proposal, Carrix says, "we do not believe that this is necessarily the optimal time for the Commonwealth to privatize the port."

Carrix's proposal offers the port an operational partnership, a financial restructuring with the help of Goldman or both. It offers a range of options that include several scenarios.

VIT's fate, for example, would depend on which scenario the state chooses.

Carrix would be compensated through a cash-sharing system in which the port authority keeps 100 percent of proceeds up to $25 million. From there, Carrix takes a 50 percent cut of operating cash up to $40 million. After $40 million, Carrix would keep 75 percent of cash generated.

Craney Island would be a shared expense, split between the port authority and Carrix.